Abstract

The purpose of this thesis has been to investigate evidence of economies of scale and
scope in various European banking markets. The thesis has also examined the cost
implications from hypothetical bank mergers both within the French, German, Italian
and Spanish banking markets and cross-border in the EU. The analysis has been
prompted by claims that substantial cost savings could be expected as the result of the
EU's single market programme in the banking area. Economies of scale and scope, a
substantial part of industrial organisations literature, have been widely examined in the
US banking system, although little empirical work to date has been undertaken on
European banking markets. This thesis aimed to rectify this imbalance in the literature
by providing a detailed, in-depth and original analysis of scale and scope economies as
well as investigating the cost implications of hypothetical bank mergers.
Overall, the results suggest noticeable differences in cost characteristics across
European banking markets and strong evidence of economies of scale and scope at the
plant (or branch) level in all but the Spanish market. Cost savings appear to occur
mainly through the increased average size of established banks' branches rather than
through adding new branches. The findings appear to indicate that scale and scope
economies will be important in generating economic gains to EU banking markets under
the Single Market programme.
The evidence from hypothetical mergers within the individual domestic banking markets
appears to be that mergers between large banks can generate substantial cost savings or
increases depending on the particular merger partners. In general, the results indicate
that opportunities for cost saving mergers seem to be greater in Germany and Spain
than in the French and Italian banking markets. The prospects for cost saving big-bank
mergers in Italy, appear to be limited. The selective results for the hypothetical mergers
between the 20 largest banks within domestic banking markets imply that substantial
cost savings can be generated from mergers between top commercial banks in Germany.
For the Italian banking market, the analyses shows that the majority of hypothetical
mergers indicate an increase in predicted total costs. Moreover, the findings from Spain
and France are less clear-cut.
The evidence from our analysis of hypothetical cross-border mergers in the EU
indicates only limited opportunities for costs saving from big bank mergers and that
such mergers are more likely to result in an increase in total costs.